Paying off debt: How does a draw work?

Reply Wed 25 Nov, 2020 10:07 am
Assumption: I have an LLC with sole ownership and I take out a home equity loan to invest in the business.

Does the LLC write a check to pay off the home equity loan directly? Is that a draw? Or do I have to pay myself each month to pay the home equity loan (and pay taxes on that)?
Reply Wed 25 Nov, 2020 10:28 am
Speaking as someone who works for a business credit advisory company, please don't put your home on the line for your business. Small businesses fail at the rate of about half by the time the first 5 years are up.

Essentially, what you're doing with a home equity loan is your business creditors will be able to go after your house if your business fails and it goes bankrupt with debts.
Reply Wed 25 Nov, 2020 11:07 am
I'm glad you asked! Perhaps my information is incorrect. My understanding is that if you own 20% or more of a company, you need to sign a personal guarantee that says they can come after your personal assets if the business fails, correct? If this is correct, what is the difference between a business loan and a HE loan from a liability standpoint?
Reply Wed 25 Nov, 2020 12:21 pm
I think you're right (I'd have to check, and I don't want to tell you the wrong thing).

If you've got business credit (I'm trying really hard not to sound like an infomercial), then you shouldn't need to give a PG. In any event, if you've got collateral - and you'd be surprised what you can use as collateral, including accounts receivables - then you may be able to get a business loan rather than what is essentially a big-time personal loan.

Obviously, I don't know your FICO or PAYDEX scores and I won't ask. But if you've got AR or maybe big company assets (I'm talking trucks or big, immovable machines, not PCs), or a ton of inventory with proof of your sales for the last few months which show that you're bringing in the bucks, then a bank might look favorably upon your loan application. Can't hurt to check with the bank where you've got your business bank account.

I realize that's a lot of qualifiers. Like I said, I'm trying not to sound salesy and I'm also trying to set expectations and not steer you wrong.

But whenever you can get out of giving a PG, do so.
Reply Wed 25 Nov, 2020 01:09 pm
That is helpful. Thanks for your input!!
Reply Wed 25 Nov, 2020 01:44 pm
You're welcome. I'll go ask my boss for a raise when he gets back from Thanksgiving. He'll be in a turkey coma, so maybe that'll work Wink
0 Replies

Related Topics

Where is the US economy headed? - Discussion by au1929
Shopping Around For Loans - Question by Brandon9000
What is greed? - Discussion by Robert Gentel
bonds series h - Question by allen russell
Naked Short Selling - Question by optimus cubed
HOW TO GET WEALTHY - Discussion by farmerman
  1. Forums
  2. » Paying off debt: How does a draw work?
Copyright © 2023 MadLab, LLC :: Terms of Service :: Privacy Policy :: Page generated in 0.03 seconds on 06/06/2023 at 02:55:29